Local Government Finance

Part of Oral Answers to Questions — Prime Minister – in the House of Commons at 5:39 pm on 3rd February 2010.

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Photo of Julia Goldsworthy Julia Goldsworthy Shadow Secretary of State for Communities and Local Government 5:39 pm, 3rd February 2010

As I was saying, one of the weaknesses in the current system is the fact that 75 per cent. of what local councils spend is not raised locally. A number of things can be done-some more quickly than others-to try to reverse that ratio. Another weakness in the system is the fact that taxpayers and business rate payers see no correlation between what they pay to their local council and what they end up getting from their local council. Again, when we end up with significant cuts and very difficult decisions, it makes matters even more painful. I know that in the period leading up to my election, I was told increasingly on the doorstep that the current system was unsustainable and that council tax was hated. I think that that problem will be magnified as we go through this process.

We must not forget, too, that the council tax system is incredibly inefficient. We need only look at the successful application rates for council tax benefit, for example, and at how many people are entitled to it who do not receive it. What will happen in a situation where there might be potentially significant increases in council tax? On top of all that, a range of public services are delivered locally outside local government that might well be subject to similar pressures for which there is no accountability. There is a fundamental question about the other services that are delivered locally outside the local authority. This will lead to the unsuitable state of affairs that we have seen for a long time becoming completely unsustainable. The kind of changes that we need do not simply involve providing longer funding horizons for local authorities, although of course that is helpful. It is not just about getting the funding formula or equalisation measures right or about fully funding any additional responsibilities that central Government pass on to local government. It is about a much bigger issue, for which this situation might provide a catalyst.

We have a massive disconnect between the people who are accessing public services locally and the organisations that deliver them. Changes need to be more than bureaucratic; they need fundamentally to alter the relationships not just between central and local government but with the people who use those public services. That is why it is depressing when there is an amusing bit of knockabout in the Chamber on familiar issues-revaluation being the obvious one-when the subject is a complete red herring, with people arguing at cross purposes and both sides holding intellectually unsustainable positions. It is not possible to say, "We think that the council tax system is great, but we think that revaluation is bad." If we want to keep the council tax system then we must, as my hon. Friend Mr. Heath has said, have regular revaluations. That is part of the system. If we do not like revaluations, we must rethink the matter and decide what is the most suitable way of raising taxes locally. It is embarrassing to hear the fake arguments about what is being considered and what is being done. If people really believe that council tax is the right system, they should stand up for the revaluation system.

In our previous debates on this issue, the most recent of which was on a Conservative Opposition day, the Conservatives have done an absolutely fine job of analysing the problem, but if they think that they will be in a position to run a Government, they need some ideas. Just being able to tell a good story is not enough. Their stance on the council tax freeze is a prime example of how they really do not get it. They are quite happy to talk about localism and to use some of the rhetoric that they think sounds great, but a council tax freeze would mean more centralised funding for local government and less local discretion over the delivery of public services. Their stance on that issue completely contradicts what they say they believe, and is nonsense.

The Conservatives' proposal on planning is also nonsense. They want to replace central pressures on house building with financial pressures. If one sets that idea in the context of what I said about the IFS "Green Budget", we are again talking about massive financial pressures on councils to approve huge developments because that is the only way in which they will get additional income. In my view, housing policy should be based on what the local population needs, not on centrally driven targets or what are basically financial bribes. The priority should be local need, and policy should not be driven by financial incentives or central targets.

As far as I can work out, the Government's approach to this issue has been displacement activity. There has been a bureaucratic response, but what really needs to be addressed is how people are consulted, how decisions are taken about the delivery of public services and how money is raised. A classic example of the situation is provided in a document published by the Cabinet Office, rather than the Department for Communities and Local Government, which exemplifies the kind of approach that the Government take. I shall be interested to hear from the Minister how effectively she thinks the "Smarter Government" document and its implementation will help to engage communities on what will be difficult issues. There is a chapter on dealing with local priorities, and page 38 talks about how the Government will improve such relationships. One section states:

"We will align the different sector-specific performance management frameworks across key local agencies-the NHS, police, schools and local government-thereby increasing the focus on indicators relating to joint outcomes. We will set out in Budget 2010 the key areas where frameworks for specific frontline sectors can be further aligned."

If that is a good example of engaging people, sorting out local government and making it more accessible, and if that is the kind of bureaucratic approach that will be taken, then we have a depressing world to look forward to.

Another area in which such ideas are being investigated is Total Place. I have a particular interest in this issue because of the many similarities to the Sustainable Communities Act 2007, which I presented as a Bill to Parliament in 2006, following up the excellent work of Sue Doughty, the former MP for Guildford. A key strand of the Act involves the provision of easily digestible local spending reports that contain details of all public spending at local level. The idea behind the reports was that once that information was in the public domain, members of the public would want to have a say in how it could be better spent. It was part of a process to turn decision making around and make it work on a bottom-up, rather than a top-down, basis. The Government have decided, perhaps because that idea did not come from the DCLG, that they do not want to implement it as quickly as the tens of thousands of people who supported that campaign wanted it implemented. However, Total Place provides a way in which that information can be made available in a better way than is being achieved in the local spending reports under the 2007 Act.

Again, the Government have missed the point. They are making localism a worthy way of having local area agreements with knobs on, but they are not thinking about how to use it as a tool for engaging people, and are not using their expertise to ensure that the right things are prioritised and that money is spent effectively. It is very frustrating that the Government have missed the fundamental point of adopting a localist approach in the first place.

Instead of inertia and denial about the terrifying future facing a lot of Departments, we need radical action. We need a simplified, localist system of public services that is easier for people to understand and influence. The current difficult financial situation makes that more important, not less.

The Liberal Democrats have put the localist agenda at front and centre of what we want to do, and that stands in direct contrast to the approach taken by Labour and the Conservatives. The Government's compartmentalised approach spreads across departmental silos, but it is also evident within Departments: today's debate has made it clear that the section of the DCLG that deals with localism and participation does not feel any need to work with the section that deals with local government finance. The localist agenda must cut across both this and other Departments, although I am not convinced that that happens. It is beginning to happen with the Total Place initiative but, unfortunately, as with a lot of things, that is driven by the Treasury.

We need to encourage more cross-departmental thinking. The localist agenda is important now because some painful, difficult and controversial decisions will have to be taken on the delivery of local public services. Inevitably, they will have an impact on the front line in one way or another. We hear a great deal about how problems can be dealt with by efficiency gains, but that is not so-there will be dramatic cuts.

The IFS has shown how deep those cuts will have to be if we get a Labour Government after the general election, although a Conservative Government is likely to be even worse. The cuts will be really painful if the current set-up does not change. They will be imposed on communities, without involving or being properly accountable to the people in them.

The interim findings of the Total Place pilot revealed that councils spend an average of £7,000 per person on public services, of which only £350 is discretionary spending. There are likely to be a huge number of changes over which people will feel that they have no influence or say. It is important that that does not happen.

We need public services that are designed for, and accountable to, the people who use them, whereas currently we have a system that is designed for the benefit of the organisations involved in delivering them. The emphasis seems to be on administrative convenience, not on the interests of the people who use the services. A fundamental shift needs to happen, and it must cut across a variety of different areas. The tax system must change, so that the taxes that we pay locally no longer disappear into the Treasury to be spent elsewhere. We can achieve that by localising business rates and moving to a system of local income tax, although we would like to allow the councils that are keen to trial that system to pilot it first.

Money that currently goes to remote and unaccountable organisations could be redirected towards putting local communities in charge of economic regeneration. In addition, the housing revenue account needs to be sorted out, so that councils have greater freedom to borrow and invest in council housing. We also need to give people a proper say on decisions that affect them in other areas.

The approach that I am outlining would get rid of unaccountable quangos, but it would also have implications for electoral reform. The Prime Minister may have had a deathbed conversion to that yesterday, but he seems to be interested only in the Westminster Parliament. If we are serious about engaging people in politics, we must realise that there are thousands of politicians around the country who are in the same boat as we are.

People will have their faith and confidence in politics restored if politicians of all kinds go out and prove to them, on their doorsteps, that their vote counts and will make a difference. I was therefore very disappointed that yesterday we saw only baby steps taken for the Westminster Parliament. No such steps were taken at the level of local government, even though some progress in that direction has been made in Scotland. We should remember that the crisis in confidence in politics is not exclusive to Westminster.

That is the kind of debate that we should be having about the future of local government finance, and of local government more widely. I am disappointed that the Government have not proposed ways to deal with the fiscal crisis that we face and to ensure that people have a say and a stake in the process. The Government continue to assume the worst of local authorities and local people, while presuming that every action taken by central Government is in the best interests of those people and is the best possible outcome, which is certainly not the case. As we go forward into a fiscally tight situation, that is even more important.

Labour should have come clean on what their proposals will mean for local government, instead of denying that there is any problem with the current set-up. It seems that the Conservatives are intent on cheering them on in that double delusion. We need real change for a fairer, greener and more local system of politics.

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